The Federal Reserve raised key interest rates by 25 basis points (bps) on March 22nd, marking its ninth increase in around a year. This comes as federal policymakers have voted unanimously to increase the benchmark interest rate to just under 5%. The rates were expected to increase by 0.5%, but were affected by the shutdown of Silicon Valley Bank (SVB) earlier in March. This raise not only is affecting the global gold markets, businesses, and exchange rates, but is also having some impact on Egypt’s economy.

Fluttering Currency Exchange Rates

After the Federal Reserve raised the interest rate, the US dollar’s value dropped against Asian currencies on March 23rd, allowing, for example, the South Korean won to rise by more than 2% to a one-month high. However, the interest rate increase did not have a huge impact on the exchange rate of the Egyptian pound against the USD. On March 21st, USD was equivalent to EGP 30.89. Afterward, on March 23rd, USD was worth EGP 30.95. "Future currency rate of the currencies is predicted at 46.10717906261 (49.509%) after a year according to our prediction system," according to GOV Capital USD/EGP Forecast.

The closure of SVB and Signature Bank earlier in March caused exchange rates fluctuate a, as the rates falling to EGP 30.75 per USD on March 10th and EGP 30.63 per USD on March 12th. The exchange rates have been gradually growing back as economists were expecting the federal interest rates to increase at the March 22nd meeting.

Gold Price Rocks following Fed Announcement

In the wake of the Federal Reserve’s announcement, gold markets witnessed a hike. On March 21st, the global price of gold closed at $1,943.26 per ounce, while it closed at $1,967.38 per ounce on March 22nd, and at $1,991.73 per ounce on March 24th.

In Egypt, gold prices were also affected. Sherif, a gold jewelry store owner, tells Arab Finance: “The price of gold rose following the Federal Reserve’s decision, which had a negative impact on the sale of jewelry and a positive impact on the sale of gold bullion and pounds, leading to an increase in the movement of investment in gold coins and ingots.”

At noon on March 22nd, gold prices in Egypt recorded EGP 2,010 per gram of 21-karat gold, while a gram of 24-karat gold was priced at EGP 2,297. Later that night, a gram of 21-karat gold was worth EGP 2,030, and a gram of 24-karat gold was valued at EGP 2,320. On March 24th, gold prices were EGP 2,050 per a gram of 21-karat gold, and EGP 2,343 for a gram of 24-karat gold.

CBE Meeting Expectations

The Central Bank of Egypt (CBE) will meet at the end of March to decide whether to fix or increase interest rates. After the Federal Reserve’s decision, people have been speculating if the CBE would hold an urgent meeting before the scheduled one. Ahmed Metwally, an Economic Analyst, tells Arab Finance that he does not think an urgent exceptional CBE meeting is needed, adding that the meeting is already scheduled in a few days’ time.

“The next meeting of the CBE’s Monetary Policy Committee (MPC) will take place on March 30th, with interest rates expected to either remain unchanged or rise. Fixing rates is more likely in the event that the MPC’s goal is to maintain the budget deficit because there is a direct relationship between the interest rate and the budget deficit; if the interest rate is increased, the budget deficit and debt service will increase,” Metwally explains.

“On a personal level, I expect that people will either start new deposits with an interest rate of 18% or more, or redeem them and get them in the market. This is based on the inflation figures that were announced in February 2023, whilst keeping in mind that customer deposits and certificates redemption are due from March 21st, 2023,” Metwally says, noting “as a result, there will be money in the hands of people who can buy goods and services, causing inflation to increase even further.”

“According to these indicators, I expect that the interest rate will increase by 1% to 2%, especially after it was fixed at the last meeting on February 2nd,” Metwally states, pointing out that the core inflation rates that were announced in February 2023 reached 40%.

Moreover, Arab Finance conducted a poll to gauge expectations for Egypt's interest rates at the upcoming MPC meeting. The results showed that 43% of voters expect interest rates to increase by 300 basis points, while 34% of them anticipate an increase of 200 basis points, and 23% believe the interest rate will remain unchanged.

The impact of the Federal Reserve’s interest rates hike on the Egyptian economy further is yet to be seen, especially as the CBE meeting comes closer. People are still on the watchout for the CBE to raise or fix interest rates at its March meeting.

 

 

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